CHICAGO — The Indiana General Assembly last weekend wrapped up its session with some major highlights, authorizing the privatization of two of the state's largest infrastructure projects and moving to preserve recent property tax caps by making them part of the state constitution.

Lawmakers also approved a measure allowing school districts to dip into capital funds to offset operating deficits tied to state cuts. The move could mean less money for school building projects even as districts grapple with declining capital budgets due to recently enacted property tax caps.

In northwest Indiana, the beset city of Gary lost its bid to allow land-based casinos. The defeat comes as Gary, like a handful of other municipalities, continues to lobby the state for relief from the property tax caps.

Officials in the southwest lost a bid to set up the state's first sales tax-increment financing district to finance a nonprofit educational theme park after Indiana lawmakers, reluctant to allow state sales tax revenue to be diverted for local projects, defeated the measure.

All in all, it was an "essentially defensive" session that had lawmakers trying to keep down spending amid declining revenues, said Gov. Mitch Daniels, who warned that lawmakers will be heading into a much more difficult 2011 legislative session if revenues do not pick up.

"If we don't see a really significant improvement, it will be extraordinarily difficult next year," Daniels said in a press conference Monday. "In the 10 months between now and the next legislature, our number-one priority will be maintaining our solvency and our triple-A credit rating."

The 2010 session adjourned Friday after midnight, and by Saturday morning many legislators had already launched fundraising campaigns for the November election.

It's expected to be a tough election year in Indiana. With a large Republican majority in the Senate and a popular GOP governor in the midst of his second term, Democrats are battling to retain their slim majority in the House. The next legislative session, which begins in January, will be dominated by the drawing of new legislative districts.

A bill opening up the state's ability to privatize two major projects was "among the most important achievements of this General Assembly," Daniels said.

Signed into law last week, the measure allows the governor to negotiate with private companies interested in financing and operating a proposed $1 billion toll road between Indiana and Illinois, as well as a $4.1 billion joint project with Kentucky to build a pair of bridges across the Ohio River.

For local cities and towns, the effort to make Indiana's relatively new property tax caps permanent remains one of the biggest threats, one municipal lobbyist said.

First enacted in 2008, the property tax caps take full effect this year. A residential homeowner's bill is now capped at 1% of the home's assessed value, rental property bills are capped at 2% of assessed value, and commercial property bills at 3% of assessed value. The caps have meant drops — sometimes steep — in property tax revenue for local units of governments.

Lawmakers from both parties supported a resolution to put on the November ballot a referendum to preserve the tax caps by amending the state constitution.

If successful, the resolution will likely mean the elimination of the state-run Distressed Unit Appeals Board, which is the only mechanism set up for local governments seeking relief from the caps. Gary, for example, has relied heavily on the board to provide relief from the caps, which last year would have meant the loss of up $30 million in revenue, or roughly half the city's operating budget.

"There will be, I'm sure, a campaign and discussion trying to inform voters about what this really means," said Rhonda Cook, director of government affairs and legislative counsel for the Indiana Association of Cities and Towns. "Until we have true fiscal home rule at the local level, we don't think the provision should go into the constitution."

On debt-related issues, lawmakers approved a provision that would allow local governments, with voter approval, to increase property taxes to finance less-costly projects.

Currently, projects above a certain amount can be financed with property tax revenue in excess of the cap only with voter approval. But projects that cost less than $12 million, or 1% of the governmental unit's total assessed value, can be financed only with existing property tax revenue.

"When you look at how the project will potentially take up some of the tax-cap space, you might just want to go ahead and risk it and ask for voter approval," Cook said. "If the voters approve it, then you get to protect the money under the cap and charge taxpayers more."

A measure to provide some cushion for school districts struggling to offset $300 million in state cuts became a key issue. A final bill allows districts to spend up to 5% of the amount they tax each year for capital projects and transportation on operating expenses. Those that forgo raises for teachers and employees can tap an additional 5%.

Daniels on Monday said that Indiana "only nicked as opposed to gouging education funding" and that K-12 funding could face more cuts next year if revenue doesn't begin to pick up.

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